[Editor: This post is a replay of one our most popular blog posts on passive real estate and syndications.
To remind you, this is the last few days to join the waitlist for Passive Real Estate Academy. By being on the waitlist, you’ll receive a chance to join this community for a 10% discount. Learn to confidently invest in passive real estate deals (like syndications) in 4 weeks. Enjoy!]
The term “passive income” is used a lot on this blog; it’s right in the title. I’ve talked about how to generate it, how to use it as a tool, and even the mindset you need to get it done.
But believe it or not, there is a lot of debate as to whether there is any “passive income” at all.
For many people, “passive” means “zero exertion,” and their minds refer to all of the other get-rich-quick programs.
But there are a few things wrong with this assumption. Nothing is free. Every investment initially costs time, capital or effort. However, it doesn’t always have to stay that way.
My own definition of passive income is “income that is not proportional to the time you spent making it”. I’m certainly not saying it doesn’t take time. It is just the income that comes from a more effective and efficient method than the traditional formula (time-in = money-out).
With the traditional method, the income machine stops when you take time out. The nice thing about passive income, on the other hand, is that most of the effort is done in advance and the benefits come later. Investing in passive real estate is the perfect example.
Passive real estate is a type of real estate investment that you invest in other people Offers. These businesses are sometimes called “syndications” and are managed by professionals. They take over all of the operations, acquire and sell the property – and everything in between.
As an investor, this reduces the amount of work involved in traditional methods of real estate investment.
However, it is crucial to do proper due diligence in advance. Once that’s done (and well done), you can simply wait for the income and investments to pay off.
This is closest to the real “passive income” that the real estate investment world can offer.
And while this is great, it may be better to use a clearer and more descriptive term. That word is “LEVER”.
What is leverage?
In simple terms, leverage is the use of resources to multiply your desired outcome.
For example, if you’ve ever bought a home, you’ve used leverage. You make a down payment and then borrow a loan from a bank to buy a larger property than you would otherwise be able to pay in cash.
Another example: when you have to lift something heavier than you could do it on your own, use something other than just your own body and effort to get the result, be it a lever or a mechanical device.
The same principles apply to investments in passive real estate. There are ways to use massive leverage to make a better investment and hopefully raise more capital.
Here are 5 ways you can use leverage to your advantage when investing in passive real estate.
1) Use knowledge and experience
Let’s leave humility aside for a moment. As a doctor, you have at least ten years to become an expert in what you do.
Becoming an expert takes time, effort, and experience – no matter what field you are in. Because of this, becoming an expert in passive real estate investing can be a daunting and time-consuming task.
But by learning from others who do this on a full-time basis and who have years of experience, you can get all the benefits their experience in your favor.
Leveraging the experience of others is not only enormously valuable for your personal and financial growth, but also an important shortcut to achieve your own goals. After all, it is better to learn from the mistakes of others than to make from your own mistakes.
There’s this meme I’ve seen in the medical world that goes something like this, “You don’t pay for the 30 minutes it takes for the procedure, you pay for the years it took to learn how to do it well. “
The same goes for investments. By investing with others, you get the years of success, failures, and knowledge it took to get them to where they are without having to go through it yourself. That is leverage.
Other ways to capitalize on experiences in the world of passive investing is to find like-minded people in similar situations and learn with them. You have already started by reading this blog.
You can join local investment clubs, join Facebook groups, or just ask colleagues. You can also take a course like our upcoming Passive Real Estate Academy.
Whatever you are pursuing, if you can leverage experience, you will find that you will achieve your goals much sooner.
2) Leverage financial strength
Chances are that if you want to purchase a property, such as a rental apartment, you will need to take out a loan. When that time comes, your history, creditworthiness, and experience go a long way in ensuring you get the best deal.
I know this because when I was trying to buy my first apartment building, I couldn’t get the best terms due to my lack of experience.
When you buy real estate, you are likely to get larger loans. And the larger the loan amount, the greater the impact even small interest rate differentials will have on your bottom line.
Not only is it important to get the best interest rate possible, but also the best term that makes sense. Sometimes longer terms are ideal as they can be used to compensate for market fluctuations.
However, you and I may not have access to these types of business depending on our own financial strength, background, and lender relationships.
People who do this on a full-time basis, have a track record, and have devoted years to building these lender relationships often have access to credit terms that you or I probably cannot ensure.
However, if you invest with a professional, you can get that access. How to use your financial strength in your favor.
3) Use an integrated team
It’s discussed a lot, but building a good team is a crucial part of the property buying process. You need to have a broker, property manager, lender, insurance agent, and more.
Building a good team from scratch can take some time, and it’s important to look around for people you trust and who have a good track record.
But by using a professional sponsor who has these teams built and ready to go, you can completely bypass all of the trial and error of building a team. Instead, it took the sponsor years of trial and error to find exactly the right people and organizations. None of this spills over into you.
If you invest through a professional sponsor, you can take advantage of the team that has already been built up. You also have peace of mind that all of these groups work well together and you can see their track record as a whole, not just individually. This can greatly reduce your time looking for the right people and all of the headaches that come with it.
4) Leverage capital
By investing in a syndication, my contribution is only a fraction of the total investment. The benefit of investing with other investors and with a sponsor is that we can essentially pool our resources and purchase a bigger and better property than either of us could have done on our own.
Larger properties have economies of scale, so despite the larger size you still have a management team to take care of a property.
Investing this way allows you to buy property with relatively little capital otherwise be inaccessible. The larger property is likely to have a better total return (assuming you’ve done your due diligence) and once you’ve invested all that’s left to do is wait for the payouts.
Some of the best deals I’ve invested in are those that are bigger than I could have found on my own.
5) Leverage Time
After all, this point is arguably the most important of all.
The main benefit of investing in syndications, as mentioned in the previous section, is best viewed long-term. Although you will spend time doing the due diligence beforehand, all you have to do is wait for the distributions to come in afterwards.
The point of passive income is to create financial freedom. For me, freedom is the ability to do what you want with your time; so that you do the things you love with those you love.
Passive income investments such as real estate are my means of choice for this. I can’t say that I love buildings and real estate, but I love what they offer me: freedom from my job.
Passive income enables me to shape my ideal life.
When I invest in passive real estate projects, I use my limited time. I can invest time upfront, but compared to the years of passive income that a good investment can bring, it’s worth the time.
Instead of trading time for money, I’ve essentially used a small amount of time for big, long-term benefits like hanging out with my family, traveling, and enjoying my freedom.
And isn’t that the whole point?
Leverage is a powerful tool. When it comes to passive income and real estate investing, this strategy will make you a more efficient and effective investor. But it also helps you avoid hours of research, trial and error, and problems that arise.
Not only does this reduce a lot of stress for you, but it also helps you achieve your goals much faster.
In fact, there are dozens of ways you can use leverage to your advantage. Syndications and passive real estate are the best options I’ve found. After all, our ultimate goal isn’t just a great investment – it’s an investment that enables us to live the life we want and spend it with the people we love.
Of course, if you want to learn more about how you can benefit from real estate investments, visit the Passive Real Estate Academy. Not only will we cover inbound investments, but we’ll walk you through each step of the due diligence so you can choose the right deals.
Join the waiting list here to get access to a discounted price for the course.
How else do you leverage your investments?